Warning over consumer credit as borrowing rises £1.9bn in November

Consumers ramped up their non-mortgage borrowing at the fastest rate in over 11 years in the run-up to Christmas, Bank of England figures show.

The Bank recorded a £1.9 billion increase in consumer credit in November, compared with an average monthly increase of £1.6 billion over the previous six months. The £1.9 billion increase was the biggest seen since March 2005.

This pushed the annual growth rate in borrowing to 10.8% - the highest rate since autumn 2005. Debt charities warned that "alarm bells" should be ringing at the figures.

Within consumer credit, credit card lending increased by £558 million in November, in line with the previous six months, while other types of lending, including personal loans and overdrafts, increased by £1.4 billion, the highest figure seen since March 2005.

Kay Daniel Neufeld, an economist at the Centre for Economics and Business Research (Cebr), said: "The demand for credit in November was likely boosted by pre-Christmas shopping as well as the Black Friday sales at the end of the month.

"The figures support our view that UK consumer spending continues to fuel the domestic economy, despite various political and economic uncertainties in the year ahead.

"Whether this attitude is rooted in a justifiable sense of optimism and defiance or whether excessive borrowing should be considered as a rather reckless behaviour given the negative risks ahead remains to be seen.

"An economic slowdown, which is widely expected for 2017, could quickly turn manageable debt levels into a serious financial problem if people lose their jobs or credit conditions tighten."

Peter Tutton, head of policy at StepChange Debt Charity, said: "Alarm bells should be ringing. Previous experience shows how such increases in the levels of borrowing can leave households over-indebted and vulnerable to sudden changes in circumstances and drops in income that can pitch them into hardship."

Joanna Elson, chief executive of the Money Advice Trust, the charity that runs National Debtline, said its research suggests that one in three Britons put their Christmas on credit.

She said: "Consumer credit continues to soar, and this is something we should all be concerned about amidst the current uncertainty over the UK economy...

"We would urge households to review their financial position carefully before taking on any new borrowing, and consider how they would cope with the repayments in the event their circumstances take a turn for the worse."

Howard Archer, chief UK and European economist at IHS Global Insight, said consumers' strong borrowing in November ties in with ongoing robust retail sales.

He said that on one hand, the likely tougher economic conditions for consumers in the coming months may make people more cautious about borrowing.

But he continued: "On the other hand, likely deteriorating fundamentals for consumers over the coming months may increase the need for some people to borrow."

Lending to non-financial businesses decreased by £767 million in November, the Bank's figures also showed. This compared with an average monthly increase of £1.7 billion over the previous six months.

Mr Archer said: "The drop in bank lending to businesses in November fuels concern that businesses will become increasingly cautious in their behaviour, especially investment, over the coming months due to heightened uncertainty as the UK's Brexit process gets under way."

Meanwhile, the number of mortgage approvals being made to home buyers jumped to an eight-month high in November.

Some 67,505 loans were approved for house purchase in November, marking the highest figure seen since March. Some 45,683 loans were also approved for re-mortgaging in November, compared with an average of 42,664 approvals for this purpose over the previous six months.

Jonathan Harris, director of mortgage broker Anderson Harris, said: "While confidence is a little uncertain given potential economic headwinds such as the forthcoming Brexit negotiations, cheap mortgage rates are proving attractive and those who have to get on with the job of moving are continuing to do so.

"Lenders are keen to get off on the right foot this year with a number offering incentives such as cash back to entice borrowers, rather than cutting rates yet again and squeezing wafer-thin margins further."

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